In the past, I had written a lot about the market shift or correction that was heading our way. Now that it is here, and make no mistake – it is here, I wanted to answer a question that I get a lot. “What is causing the market to slow down?”
This is really a great question and it comes down to one thing- affordability. Home prices in the Shawnee Mission School District, and all over the city for that matter, have appreciated over the last five years at an unbelievable rate. Take a look at the graph below showing median home prices in the SMSD over the last two years. In 2017, from January to June, the median home price rose by 16.3 percent. That is crazy talk! In real dollars, that was an increase of $32,550. From July through the rest of the year you can see that home prices did then settle a bit, which is normal in our market.
Lets get back to that 16.3% number really quick. Home price appreciation at that rate year over year has caused price weariness and buyer fatigue. If you talk to someone who has purchased a home in the last couple of years, more often than not they will share something like, ” we had to write an offer on 2 or 3 homes before we got the one that we bought. And we had to pay over list price to get it.” There are only so many buyers who are willing to purchase a home in this kind of an environment and, based on current trends, they have all now purchased a home. I say this because overall housing demand has dropped sharply in the last month or so.
Now lets fast forward to this year. If you look at the same time period, January to June 2018, the median home price is up 8.9 percent or $20,000 is real dollars. This is still a strong increase, however, it is just a little more than half the increase that we experienced in 2017. This is a good sign. Although home appreciation is a good thing in most cases, when it significantly outpaces wage growth and inflation, a bubble is created.
Don’t get me wrong, we are not headed into another recession. I have to be really careful not to paint that picture. However, we are in a market downturn, which is a normal phase in a housing cycle. So what does that mean for the general public?
Home prices are coming down- homes that are actively for sale today are, in many cases, being forced to drop their price to attract home buyers. The last time I saw price adjustments on a regular basis was nearly five years ago. Therefore, if you are a homeowner who will be selling in the upcoming months, I would be very strategic with your Realtor when it comes to scheduling when you will hit the open market.
Buyers don’t get too cocky – and don’t get complacent either. Yes, home prices are coming down which is a good thing for a buyer, BUT mortgage interest rates are also on the rise at the same time. The smart bet is to buy a home now, or at least soon, before the cost of money gets any higher.
So what’s next? Now that we are in the downturn, we will transition into a balanced market where neither buyer nor seller has the upper hand. Please note that transitional periods from a seller’s market to a buyer’s market are much shorter periods of time. We more than likely won’t be in a balanced market for several years. It could be only one year. Then we will naturally move into a buyers’ market and the whole cycle will start all over again.
Man I love this real estate business!
If you need a strategic plan for your home sale or purchase, we are currently business planning with clients for 2019 to get them in front of the market shift. We would be honored to help you too. Please email us today or call me directly at 913-825-7540.